THE AUSTRALIAN Competition & Consumer Commission (ACCC) released its eagerly awaited report on the competitiveness of grocery prices last week.
The report outlines the findings of a comprehensive six-month inquiry by the commission — which, according to the report, involved analysing more than 250 public submissions and “vast quantities” of data and information supplied by Coles, Woolworths, Metcash and other retailer and suppliers.
Defying the expectations of many, the report’s key finding was that grocery retailing is “workably competitive”. At most, the inquiry has found, only about a twentieth of the increases in food prices in Australia over the past five years could be directly attributed to the increase in the gross margins achieved by the big grocery players. Factors that have had greater bearing on rising food prices include drought and natural disasters, the world commodities boom and increasing world food commodity prices, the report states.
However, the inquiry has found that there are several factors limiting grocery price competition — one being high barriers to entry and expansion resulting from the limited number of new sites. Potentially exacerbating this problem is Coles’ and Woolworths’ strategy of entering into restrictive leases with shopping centres.
According to the report, the ACCC has received “specific and credible evidence” that Coles and Woolworth include terms in their leases with shopping centres which effectively prevent the shopping centre leasing space to competing grocery retailers.
The report states that the ACCC will review the issue further, with a view to potentially taking action under the Trade Practices Act. Mallesons partner Caroline Coops, who represented Coles on the inquiry, explained that the ACCC does have the power to under the Trade Practices Act to take action against restrictive leases.
“They have power under the Trade Practices Act to … go to court to try and seek orders that would prevent that restrictive lease being entered into, or if it’s already been entered into, then to prevent to parties from enforcing [the restrictive provision],” she said.
The report has also responded to concerns that Coles and Woolworths have undertaken a strategy of acquiring smaller independent supermarkets. While it concluded that it is not currently a significant concern for the industry, the ACCC did recommend reforming the law to enable it effectively monitor “cumulative acquisitions”.
According to Coops, while the ACCC can take action against individual acquisitions which have the effect of substantially lessening competition, they don’t at present have the same power with respect to cumulative, smaller acquisitions that might have the same effect.
“Under the current text of the Trade Practices Act, it’s not possible for the ACCC to take action in respect of a series of individual acquisitions which don’t, in themselves, substantially lessen competition, but taken together, might,” she explained. “The ACCC is recommending that there be a change to section 50 to allow them to investigate and, if necessary, block a creeping acquisitions scenario.
One of the report’s other key recommendations is for governments to amend planning laws to require supermarket competition considerations to be taken into account when development or rezoning applications are being considered. The federal government has responded, with the Minister for Consumer Policy and Consumer Affairs, Chris Bowen, announcing last Tuesday that the issue will be referred to the Council of Australian Governments (COAG).
It also recommends that a mandatory, nationally consistent unit pricing regime be introduced for larger supermarkets, which would make it easer for consumers to compare prices of standard grocery items.